Follow-on offer would have roped in retail interests, say marketmen

While the divestment of 3.7 crore shares of Hindustan Copper Ltd (HCL) by the Union Government was declared successful at the end of trading on Friday, the stock price dived 20 per cent to Rs 213.50 on the BSE.

With the bid price was only marginally higher than the floor price, it is possible that further pain may be in store for the existing shareholders before the stock price stabilises since even after today’s fall, there is a difference of about Rs 56 between the floor price and closing price. The floor price was close to the stock's 52-week low of Rs 146 that it had touched on December 20, 2011.

But a section of the investment community is livid with anger that the Centre had chosen to auction the Hindustan Copper shares than offering it to the Indian public.

Out of bounds for public

The stock attracted heavy trading volumes in the secondary market. It was possible that the huge volume of trading was because the punters had a field day in the counter.

For instance, the trading volume on the BSE was 25.59 lakh shares at the close, a whopping ten times of the average volume of 2.78 lakh shares.

Speaking on the issue, C.J. George, Managing Director, Geojit BNP Paribas Financial Services Ltd, Kochi, said if only the Government had chosen to offload its stake to the Indian public through a follow-on public offer at such a deep discount, they would have “grabbed it.” He said, whenever companies that own nation's resources go for a public issue, the “first right to get them at a discount” should be with the people of the country.

But the auction mode generally leads to large institutional investors/ hedge funds to price out the retail investors in the bidding war and retail investors would not be able to make a successful bid for the stock in an auction.

He said the Centre should have offered the shares to the Indian public and any unsubscribed portions of it may have been offered to institutional investors such as mutual funds, insurance companies etc. It was also possible that any further fall in price of HCL might bring pressure on other listed PSU stocks, particularly those slated for disinvestment, because of fears over their pricing in future issues impacting their stock price.

> yegya.narayanan@thehindu.co.in